Apple Warns of Lower Revenues, Blaming Slower Sales in China


(Adam Engst) #1

Originally published at: https://tidbits.com/2019/01/03/apple-warns-of-lower-revenues-blaming-slower-sales-in-china/

For the first time in 18 years, Apple has revised its guidance to investors, lowering revenue estimates by $5 to $8 billion. The company blamed the lowered earnings on economic slowdowns in the Greater China market hurting iPhone sales but noted that it would still set revenue records in the US, Canada, and a number of European nations.


Here's Apple CEO Tim Cook's Memo to Employees About iPhone Sales - Bloomberg
Apple warns on Q1 results
#2

The “hands on deck” meeting should be interesting:

https://www.bloomberg.com/news/articles/2019-01-03/here-s-tim-cook-s-memo-to-employees-about-iphone-sales-slowdown


(Simon) #3

Well, considering their stock value I’m sure Apple’s execs feel like their hair’s on fire right now. They’re around $750M market cap right now. So apparently, that’s what it looks like when $250B just vanish. :smiley:

https://finance.yahoo.com/news/apple-lowers-quarterly-revenue-forecast-213856098.html

Hal Eddins, chief economist at Apple shareholder Capital Investment Counsel, said Cook’s comments on how the U.S. trade tensions with China were hurting the company’s outlook “might be a dig at (U.S. President Donald) Trump, but mostly he may be using the trade turmoil as an excuse for some missteps they’ve made over the last year.

Today alone, Apple’s value decreased by about $50B.


Top Apple analyst Kuo slashes Apple iPhone shipment estimates by 20%
#4

Things looked many billion times worse during the clone disaster.


(Simon) #5

I assume you’re employing that as a figure of speech. I cannot recall any other time in the company’s history where it lost one quarter of its value within 90 days.

As a regular consumer/user I’m not that concerned, but the shareholders I’m sure have a very different opinion on this matter. :wink:


#6

Simon

    January 3

I assume you’re employing that as a figure of speech.

Not at all. As of 11/2018 they had $237.1B cash in hand, which is a rather substantial sum.

https://www.cnbc.com/2018/11/01/apple-now-has-237point1-billion-in-cash-on-hand.html

I cannot recall any other time in the company’s history where it lost one quarter of its value within 90 days.

Things were a lot worse when Steve Jobs sold $150 million in Apple Stock + accepted an undisclosed sum (IIRC, estimated to be somewhere between $500 million to $1 billion) to settle lawsuits from Microsoft that would literally keep Apple afloat. Apple was then trading at about $4.00 a share:

http://fortune.com/2012/10/05/apple-from-1980-to-2012/

As a regular consumer/user I’m not that concerned, but the shareholders I’m sure have a very different opinion on this matter. :wink:

Of course most of them probably aren’t happy, but last I looked shares were down about 7-8%. Here’s what Warren Buffett had to say:

https://www.reuters.com/article/us-apple-stocks-berkshire/for-warren-buffett-sinking-apple-shares-a-wish-come-true-idUSKCN1OX05Y

Facebook has been weathering a lot worse lately.


#7

Not good news:


(Tommy Weir) #8

The aggressive price bumps this year can’t have helped. Partly defensive against external factors, they came across as a step too high when there’s a range of good phones in the existing models as well as (ahem) from competitors. Apple do best when the draw of the new pulls people just enough to get them over the hump of buying. The hump can’t be too big. When the new phone is significantly more… people find what they have is good enough.

Bought my daughter a 6s this Christmas, my wife has a 7 Plus, I am still on my trusty SE. I’d like the camera boost the new models have but for not much more cash I put my money in a new Fuji X100F. Happy to carry that around.


(Tommy Weir) #9

According to Horace Dediu

iPhone quarterly revenue growth, last 8 quarters.

1%
3%
2%
13%
14%
20%
29%
-15%

So a strong year bar last quarter. Those tariffs on China at work it seems.


(Simon) #10

Aren’t iPhones exempt from those tariffs?

Parts included could be affected I guess. But with the BOM of an iPhone at less than half its ASP and with tariffs IIRC not exceeding 25%, I have trouble explaining a 44% drop in revenue with a 13% increase in manufacturing cost (and that’s assuming all parts come from China and are hit by the 25% tariff).


(Tom Gewecke) #11

I think the reference was to what our tariffs are doing to the chinese economy and the consequent slowdown in demand for iphones there.


#12

tommy Tommy Weir
January 4
The aggressive price bumps this year can’t have helped. Partly defensive against external factors, they came across as a step too high when there’s a range of good phones in the existing models as well as (ahem) from competitors. Apple do best when the draw of the new pulls people just enough to get them over the hump of buying. The hump can’t be too big. When the new phone is significantly more… people find what they have is good enough.

I agree, and we held on to our 4s models for over 5 years. We’ll probably be trading in our 8 Plusses when 5G iPhones are established in the wild. From what I remember about Apple’s history with 3 and 4G, they usually wait to see how the competition works out bugs before jumping in.

At the last big iPhone release shebang, Apple made it quite clear that they are building phones to last, and emphasized longevity as a selling point. I also think that Apple started investing heavily in services years ago, and greatly upgraded the $$$$$$$ because they needed new revenue streams that would lock people into iOS and Mac. Watch, TV, etc. all feed into the ecosystem. They’ve added a number of new products and services over the past 3-4 years, with more exciting stuff to come.

Pricing can be problematic for Apple; iOS development is a never ending, big bucks requirement. Huawei, LG, Sony, etc., etc. do not invest in OS development, Google gives away Android for free because they earn money form everyone you do on or with these phones, Samsung tried it’s own mobile OS with Tizen, which tracks as much as Android, but iTixen as been spectacularly unsuccessful, You’re not just buying phone hardware when you buy an iPhone, you are buying privacy, security and iOS.

There are no indications that even a slightly significant number of people are switching to Android from iOS. In fact, I did recently read that the number of Android users switching to iPhone was continuing to be strong globally. And high prices haven’t stopped people from buying iPhones before.

Apple, since the return of Steve Jobs has always been very conservative with estimates and exceeded the goals. They revised them down and announced the revisions early rather than waiting till the big quarterly reveal for a big zinger. Most publicly traded companies usually wait till the last second to do this. Apple is still hugely profitable this quarter and there is no indication that they will be loosing money or will be in the near future. The new projections indicate the humongous cash stash will increase.

The stock price has fallen to around $133 yesterday, and maybe it will go a little lower before it climbs back. It’s nowhere near Apple’s lowest of around $4. Other than the iPhone slowdown, there was no indication in the announcement of softness in any other products or services. IMHO, the slowdown in iPhone sales is bad news, but I don’t think it’s a guarantee the sky is falling.


(Simon) #13

That makes sense. Cook seemed to indicate revenue in the US and Germany was strong. It’ll be interesting to see actual numbers as well as estimates for units sold.


(Tommy Weir) #14

Yes. Important to stay aware they are still swimming in a huge pile of actual cash.

I don’t think its worrying, just interesting. The Chinese market seems to have a particular ‘enthusiasm curve’ - when its keen, its really keen but when its cautious… its really cautious.

Still a great year for them.


#15

Luxury brands are tanking across the board in China, and the tariffs are making things a lot worse for American products:

https://www.cnn.com/2019/01/03/business/luxury-goods-apple-china/index.html

https://www.cnbc.com/2019/01/03/us-companies-are-flashing-warning-signs-about-the-chinese-economy.html


(Adam Engst) #16

I think the key issue, which I mention in my article, is that in China, WeChat is the platform, and the iPhone is merely a conduit to it. As a result, it’s trivial for Chinese users to switch phones, unlike anywhere else in the world, where people tend to be locked in to Apple’s platform by all the integrations.

So in China, Apple is competing purely on brand perception, hardware coolness, and price.


(Tommy Weir) #17

Very true Adam. Likely exacerbated if the phone is the sole computing device. So much of Apple’s key appeal/lock-in is about ecosystem, both across devices and applications/services.


(Adam Engst) #18

Ben Thompson has expanded his thoughts on the China problem and other aspects of Apple’s lowered revenues estimate. Well worth reading.

https://stratechery.com/2019/apples-errors/


#19

Apple isn’t the only global high tech powerhouse having problems in China. Samsung just sprung an even bigger surprise in their than Tim Cook did

Samsung Electronics warns profit will tumble 29%

https://www.marketwatch.com/story/samsung-electronics-warns-profit-will-tumble-29-2019-01-08

Something else interesting in the article:

“Smartphone shipments fell by 7% world-wide for the three months ended Sept. 30, compared with the prior year, their fourth straight quarter of declines, according to Canalys, a market research firm.”


(Adam Engst) #20

And LG too: